People often consider retirement to be the golden years of a person’s life. It is a period where they have all the time in the world. Of course, the ease with which you can do that requires a prerequisite of having substantial retirement savings.
There is no fixed amount of what can be ideal for a Canadian retiree to enjoy comforts in a life of retirement. Everyone has their own amount that they believe will help them enjoy their retirement without problems. The amount depends on the kind of lifestyle they currently have and want to experience, any financial obligations they have, and how much they believe they will need in retirement.
While many baby boomers on the brink of retirement might have been on track with their retirement plans, the COVID-19 pandemic threw everything out of balance. It is less to do with the global health crisis and more to do with two critical mistakes they made. The combination of a pandemic, recession, and a sell-off frenzy has made professional investors confused and put retirement savings in jeopardy.
I will discuss the two mistakes you need to avoid, so you can protect your valuable retirement savings.
Selling in a frenzy
With the onset of the pandemic, we all saw a frenzy-fueled and widespread sell-off. According to Fidelity Investments, 7.4% of investors above the age of 65 made significant changes to their investment portfolios between February and March 2020. The reason? They panicked.
Selling stocks in a state of panic made them reduce their positions in several high-quality investments at significant losses. Many investors missed the sudden rise of markets back to relative normalcy in the months after March. While investors of all age groups sold their stocks, younger investors have the time to recover their losses.
Retirees and investors on the brink of retirement do not have a decade or longer to make up for the losses.
Holding on to too much
On the polar opposite end of the scale are boomers who held onto too much. Investing 100% of your capital in equities and relying on capital gains in an uncertain market to make your overall wealth grow entails substantial risk. Instead of investing your entire savings in stocks, it is necessary to have at least some cash.
Ideally, it would be best to hold onto enough liquid assets to equal three years of projected expenses. For every 5% more stock you want to hold, I would advise keeping an additional year’s costs in liquid assets or cash. Having liquidity can help counteract any impulse to suddenly sell off your stocks at the bottom during a frenzy.
Making smarter money moves
One of the ideal ways to avoid all the uncertainty is by buying and holding secure assets. The pandemic has shown us that even the best performers can have a tough time in the markets. If there is widespread panic in the markets and people are selling stock left, right, and centre, it is better to look for something stable.
Fortis (TSX:FTS)(NYSE:FTS) is an ideal non-cyclical stock that you need to consider adding to your portfolio to protect your retirement savings and keep growing your wealth. The Canadian utility company provides electricity and gas in Canada, Latin America, and the United States. Its core service for providing heat and light is a staple that never fails to generate revenue.
No matter how bad the economy gets, people will need Fortis’s services. The company can earn income through any pandemics or financial crises. Fortis has a track record of enduring harsh economic environments. It can be a valuable defensive addition to any portfolio.
Foolish takeaway
The commonality between both retirement mistakes that boomers make is a lack of a clear financial plan. Instead of letting your emotions get in the way of your financial security, it would be better to be cautious in your approach to stock market investing as you near your retirement.
